(New York)

New academic analysis has found part of the full cost of the DOL rule on the financial sector. A group of academics analyzed the market cap movements of the top 30 brokerage and fund providers and found that, in aggregate, the DOL rule cost firms $14 bn of market cap. That figure does not include the money spent to prepare for the rule, just changes in share valuation that directly resulted form the rule. However, the same firms have since benefitted strongly from the so-called Trump Effect.

FINSUM: The DOL rule ended up being an enormous waste of time that in hindsight appears to have been doomed from the beginning. We will say that its lasting effect was to bring consciousness of fiduciary duty to the wider public.

(New York)
The last few months have been bleak for the US housing market. There has been a steady stream of negative data showing that the market is definitively slowing. Now a new one is emerging—bank lending is contracting quickly in the space. The fall off is so strong that banks are laying off workers in lending units. Both sources of demand for mortgages—refinancing and new home purchases—have dried up as interest rates and housing prices have risen. July showed the fifth straight month of declining home sales, coming in the time of the year when they should be strongest. Speaking about the state of home prices and mortgage demand, the chief economist at Fannie Mae says, “people are saying, ‘at these prices, and with rates rising, I’ll stay where I am’”.

FINSUM: We believe the US is in for a long winter of falling home prices. We think the market is at a turning point right now where sellers are trying to cling to high prices, but buyers have finally stopped giving in.

(New York)

The Fed looks set for another hike in September, and likely another before the end of the year. That means that fixed income is a very tricky market, as many bonds will likely see losses. So how can one protect their portfolio but still earn reliable income? One option is to buy floating rate bonds. Luckily, there are several funds that can help investors own floating rate bonds. Some of them include the Fidelity Floating Rate High Income (4.36% yield), the iShares Floating Rate Bond ETF, the BlackRock Floating Rate Income Strategies Fund, or the Eaton Vance Floating Rate Income Fund.

FINSUM: We think floating rate bonds seem like a good strategy for the current environment. Just be careful of high credit risk in some of these funds.

(New York)

You wouldn’t usually think of muni bonds when you are looking for juicy yields (at least not investment grade munis). However, if you look further out on the yield curve, there are some very interesting bonds. For instance, there are AAA rated 15-year munis yielding 2.7%, up from 2.2% earlier this year. Comparable two-year munis have just 1.7% yields, representing a 100 basis point spread versus the treasury market’s 29 bp spread. This is the steepest the muni yield curve has been since 2000, which creates opportunity at the long end of the curve.

FINSUM: Most advisors will be aware that even with the currently low yields in munis, the tax exemption for high income clients make the bonds very attractive, so this is just icing on the cake.

(New York)

Those trying to earn defensive income right now should look at stocks with strongly growing dividends. Rising dividends from stable companies seem like a good way to protect capital and earn income in this rising rate era. Accordingly, three companies to look at include Swiss pharma company Novartis (3.5% and growing), Pepsico (3.3% and likely to grow), and tech company Cisco, who business is growing solidly below the radar and yields just above 3%.

FINSUM: These seem like well-thought out picks, especially because some of the dividend growth is speculative, and importantly, will be driven be real operating performance.

(New York)

The big rout in emerging markets is starting to look like a full blown crisis. So far the US has proven itself immune to the turmoil, but the contagion is spreading, according to both JP Morgan and BlackRock. The pair say that a herd mentality has taken hold and that investors are indiscriminately selling emerging market assets, so matter what the value or long-term outlook. Even those with holdings that look strong are selling for fear of getting trampled by the rest of the herd, thus feeding the cycle further.

FINSUM: The big selloffs now include not only Argentina and Turkey, but South Africa, Brazil, and Indonesia. Given the Fed’s hawkishness and trade wars roaring, there is no end in sight for the turmoil.

(Washington)

Top tech industry executives have spent their week speaking with the Senate and answering tough questions about their data security, fake news, and political content. Many fear it is a preamble to a big regulatory crackdown on the sector by the Senate. Well, that has not occurred yet, but in a worrying development US attorney general Sessions has announced that his department is looking into the tech sector in regards to competition and free speech issues. Sessions said he would be meeting with state attorney generals to discuss a “growing concern” that tech companies “may be hurting competition and intentionally stifling the free exchange of ideas”.

FINSUM: This might be the beginning of a major regulatory move against the sector. We think the market will start handicapping the odds of a big crackdown as more news comes out.

(Washington)

Recent polls have shown strong gains for Democrats, raising the prospect that the party will take back the House and maybe even the Senate. So what would that mean for stocks? Well, the historical picture is mixed. Generally speaking, stocks have a rough September heading into the November midterms. However, immediately before and after the election, they are relatively unaffected, no matter the outcome. Generally speaking, from the beginning of October until the end of the year (in a midterm year), stocks rally strongly.

FINSUM: The basic picture here is that we could be in for a rocky month, but that stocks may do well as we approach and move past the midterms and investors get used to the ‘new normal’, whatever that may be.

(New York)

The yield curve is very close to inverting, an action that is widely considered to be the strongest and most reliable indicator of a forthcoming recession. Investors are afraid of it, and with good reason. So what is the best way to approach one’s portfolio as a dreaded inversion looms? The first tip is to re-evaluate any bank stocks you own. Banks become less profitable as the yield curve flattens, so they could see some big losses. Secondly, mentally prepare that returns over the next five years are probably going to be a lot lower than in the previous five. Be selective with your purchases and be defensive. Finally, don’t be too afraid to buy stocks you have a high conviction on, and that hold strong risk/reward profiles.

FINSUM: These seem like sound tips. Another obvious one is to buy stocks and bonds that will perform better in this kind of environment, such as strong dividend growing stocks or floating rate bonds.

(Buenos Aires)

A couple of weeks ago investors seemed ready to accept that the brief emerging markets selloff was just a minor Turkey-induced tantrum, but would not blossom into something worse. Well, that view seems to be waning, as the selloff in EMs has spread and is starting to have all the hallmarks of a full crisis. One analyst summarized the situation this way, explaining that this has all the hallmarks of an EM crisis: “a large dose of debt and an associated domestic credit bubble, including misallocation of capital into uneconomic trophy projects or financial speculation. Then add: a weak banking sector, budget deficits, current-account gaps, substantial short-term foreign-currency debt and inadequate forex reserves”.

FINSUM:EMs are facing a lot of headwinds, but the economies in most of them seem healthy, so hopefully the problems will be contained to just the most troubled (e.g. Turkey and Argentina).